Blockbuster ups ante in home delivery war

WASHINGTON — Studio-vidtailer revenue sharing is about to become a Blockbuster of a battleground.

To prove how serious Blockbuster Video is about gaining access to pay-per-view and video-on-demand rights to Hollywood movies, company chairman and CEO John Antioco says the vidtailer will not renew any of its revenue-sharing deals with the studios unless they cover all delivery platforms.

“To simply do a VHS deal and ignore DVD, pay-per-view and video-on-demand doesn’t make long-term sense for Blockbuster and we won’t do it,” Antioco tells Variety.

It was the boldest public statement the company has yet made regarding its efforts to extend its franchise beyond the video rental biz.

Over the past two years, Blockbuster has pacted with the likes of TiVo, DirecTV and Enron to develop Blockbuster-branded pay-per-view and video-on-demand services, but to date, has had little luck persuading the studios to license much product with which to launch those services.

With Blockbuster already controlling nearly 40% of the vid rental biz, the studios are wary of giving it a toehold in any additional ancillary markets. As one high-ranking studio exec put it, “Who invites an 800-pound gorilla into their living room?”

In December, Blockbuster and Enron launched a four-city test of their planned VOD system, relying primarily on a few hundred independently produced films Blockbuster owns. The only major-studio product available in the test are some catalog titles from MGM.

But with its initial video rev-sharing deals coming up for renewal, Blockbuster is hoping the studios are anxious enough to re-up those deals that they will bend on pay-per-view and VOD rights.

So far, the vidtailer has not signed any deals covering additional formats. But, Antioco says, “We haven’t signed any that didn’t, either.”

Any hopes the studios may have had that Blockbuster itself might be going soft on revenue-sharing, thereby reducing its leverage, were also put to rest.

“We believe revenue-sharing has been a win for the studios, a win for retailers and a win for consumers,” he says. “Not only do we consider revenue-sharing still valuable, we would never go back to a non-revenue-sharing model. In fact, if some studio chose to do away with revenue-sharing, we would only purchase their (sale-priced) product.”

According to some studio execs, Blockbuster has recently been cutting back on its purchases of new VHS cassettes, leading to speculation that the vidtailer was having trouble managing the greater copy-depth resulting from rev-sharing.

Antioco acknowledges the VHS cutbacks, but says they merely reflect the vidtailer’s gradual transition from the VHS format to DVD.

“We expect DVD to be about 25% of our new release rentals this year,” he says. “Unfortunately, not all of that will be incremental business. So we have to cut back some of our VHS purchases in order to accommodate our increased DVD business.”

The exec estimated that if VHS rentals were to fall by 10% this year, it would result in 5% to 7% fewer VHS copies going into Blockbuster stores.

The wide-ranging interview touched on several areas where Blockbuster has recently been the center of controversy.

Earlier this month, for instance, Blockbuster and the studios were the targets of antitrust litigation in California brought by a group of 200 independent retailers. The case is related to another suit pending in federal district court in Texas.

In both lawsuits, the studios are charged with providing Blockbuster with “secret revenue-sharing agreements” on terms not available to other retailers, with the purpose and effect of “driving independent retailers out of business.”

Antioco calls the charges “ludicrous.”

“The last thing the studios want is for Blockbuster to gain any more market share at the expense of the independents,” Antioco says. “Why would they do that? Do they think the studios want one customer with a 70% market share?”

Antioco says he chose this time to go public with his comments, because “there’s a lot of misinformation out there, and I thought it was time to set the record straight.”

Antioco could also be feeling somewhat more confident about his company’s position. After two years of being hammered by Wall Street, Blockbuster’s stock price has risen about 30% since the beginning of the year.

The increase has been due in large measure to the company’s concerted effort to convince investors it has a future beyond the video rental biz — by moving aggressively into new movie delivery platforms.

If it wants to maintain the momentum, the company is going to have to turn some of those promising moves into concrete businesses, and that means gaining the cooperation of the studios one way or another.

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